Dexus Property Group
has delivered its Canadian takeover partner some cleverly layered flexibility to make an early and enriching withdrawal from the joint venture vehicle making a highly unusual unconditional offer for the Commonwealth Property Office Fund.

That Dexus might offer protections to the Canada Pension Plan Investment Board from the risk that they will fall short of the control threshold is no surprise at all.

What is puzzling though is the breadth of the “liquidity" arrangements outlined in a bidder’s statement that was presented to the market late on Thursday evening.

The end result looks not at all like the much more vanilla put and call protections we were assured were under construction just two weeks ago.

Indeed, it would not be unfair to suggest that the list of triggers for retreat renders CPPIB a financier rather than a joint venture partner until the bid crosses the control threshold of 50 per cent.

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Only after that does Canada’s longer interest in this matter of contest look to be seriously secure.

General interest on this front was triggered by commentary in the joint venture’s December 11 announcement of improved terms that included more cash and that plainly trumped GPT’s offer.

The statement included a comment that the consortium had “entered into agreements that provide the potential for liquidity in the future" should the now unconditional offer earn less than 100 per cent acceptance.

Exit triggers

Team GPT seized, seagull-like, the new flexibility, wondering whether or not it allowed the Canadian’s easy release from the JV should they end up stuck with control but not full ownership or, worse, end up locked in there as minority owners. There were questions too about whether particular local property assets might end up securing the Canadian’s contribution to the joint venture.

No, no, we were assured.

The “liquidity" arrangements involved various puts and calls, did not involve property swaps and were long dated, with the exit triggers live only after 36 months. Don’t worry, we were told, the Canadians were here for the medium term at very least.

Well, that might yet prove to be right.

But the fact of the scheme described on Thursday evening opens a very clear pathway for the Canadians to take their leave after only 12 months if the joint venture fails to achieve control of CPA.

That exit option takes the form of a put or call over $600 million worth of CPA units by the joint venture. For good measure, the value of those units will be assessed as the original offer price with a 9 per cent per anum return baked into them.

Now, as we have already said, Dexus does not imagine for a second that the war for CPA will end without control passing to either its JV or to GPT. And currently the mood of the market sits very much with Team Dexus with acceptance running at about 10 per cent. Add that to the 14.9 per cent it picked up through a collar arrangement with Deutsche Bank ahead of hostilities starting, and the JV is half way there already.

Nonetheless, the gap between what we were told was under construction two weeks ago and the quantum of the protections that have actually been delivered to CPPIB is disquieting and might yet result in some sort of regulatory contest with GPT.